Question

In: Accounting

) The comparative balance sheet of Ahmed & Company appears below: Ahmed & Company Comparative Balance...

) The comparative balance sheet of Ahmed & Company appears below:

Ahmed & Company

Comparative Balance Sheet

December 31,

Assets                                                                                                                 2019            2018

                                                                                                                         (‘000)           (‘000)

Current assets ..........................................................................................        $   450             $280

Plant assets ..............................................................................................             550             520

      Total assets ........................................................................................        $1,000             $800

Liabilities and stockholders' equity

Current liabilities .....................................................................................        $   180             $120

Long-term debt .......................................................................................             250               160

Common stock ........................................................................................             310               320

Retained earnings ...................................................................................             260             200

      Total liabilities and stockholders' equity ...........................................        $1,000             $800

Instructions

(a)     Using horizontal analysis, show the percentage change for each balance sheet item using 2018 as a base year.

(b)    Using vertical analysis, prepare a common size comparative balance sheet.

b) Muscat Corporation had the information listed below available in preparing an income statement for the year ended December 31, 2019. All amounts are before income taxes. Assume a 30% income tax rate for all items.

         Sales                                                                                                               $ 900,000

         Expropriation of property by a foreign government (loss)                            $ (90,000)

         Income from operation of discontinued cement division                              $ 100,000

         Loss from disposal of cement division                                                          $ (80,000)

         Operating expenses                                                                                        $ 120,000

         Gain on sale of equipment                                                                             $   60,000

         Cost of goods sold                                                                                         $ 420,000

Instructions

Prepare a multiple-step income statement in good form which takes into account intra period income tax allocation. Ignore EPS computations.

Solutions

Expert Solution

A ) The comparative balance sheet of Ahmed & Company appears below:

.

(a) Using horizontal analysis, show the percentage change for each balance sheet item using 2018 as a base year

Ahmed & Company

Comparative Balance Sheet – Horizontal

December 31, (in thousands )

2019

%

2018

%

Assets:

Current assets

           $450

160.71%

$280

100%

Plant assets

550

105.77%

520

100%

Total assets

1000

125.00%

800

100%

Liabilities and stockholders' equity

Current liabilities

180

150.00%

120

100%

Long-term debt

250

156.25%

160

100%

Common stock

310

96.88%

320

100%

Retained earnings

260

130.00%

200

100%

Total liabilities and stockholders' equity

1000

125.00%

800

100%

.

(b)    Using vertical analysis, prepare a common size comparative balance sheet.

.

Ahmed & Company

Comparative Balance Sheet – Vertical

December 31, (in thousands )

2019

%

2018

%

Assets:

Current assets

           $450

45%

280

35%

Plant assets

550

55%

520

65%

Total assets

1000

100%

800

100%

Liabilities and stockholders' equity

Current liabilities

180

18%

120

15%

Long-term debt

250

25%

160

20%

Common stock

310

31%

320

40%

Retained earnings

260

26%

200

25%

Total liabilities and stockholders' equity

1000

100%

800

100%

.

B) Muscat Corporation had the information listed below available in preparing an income statement for the year ended December 31, 2019. All amounts are before income taxes. Assume a 30% income tax rate for all items.

Prepare a multiple-step income statement in good form which takes into account intra period income tax allocation. Ignore EPS computations.

.

Muscat Corporation

income statement

for the year ended December 31, 2019

Sales

$900000

Cost of goods sold

(420000)

Gross profit

$480000

Operating expenses

(120000)

Operating income:

on sale of equipment

60000

Income Before taxes

$420000

Tax Exp. (420000 * 30%)

(126000)

Income From Continuing Operation

$294000

Discontinued Operation:

Income from operation of discontinued cement division .................................................. 100000

Loss from disposal of cement division.....(80000)

Income from operation and disposal of discontinued cement division 20000 , net of tax $6000 exp.

14000

Extra ordinary items:

Expropriation of property by a foreign government (loss), net of 27000 income tax savings

(63000)

Net income

$245000

ekkarill92 answered 1 year ago
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